No, it isn't rocket science. But, like rocket science, it has to be approached with an unemotional attachment.

Best to you. 

KCallie "Informed moves involve taking gains when a stock has gained for you and buying after an otherwise good company has had a rough period or after a sector has had a rough period that you think will pass and so currently you think the stocks are undervalued for the long term."

 In your example you have assumed that two disparate conditions are identical. I disagree.

"[T]aking gains when a stock has gained for you" is a fact. You know your cost basis. You know the current price. You can take a profit. You're assuming, of course, that the price will not go higher. Nevertheless, you are acting on known facts.

"[Y]ou think the stocks are undervalued for the long term". That implies you can forecast the future.(1) You surmise the stock's price has dropped only because it's sector is out of favor. (2) You surmise the stock will do well in the future. (3) You surmise that the stock's price will increase in the future because other investors will agree with your assessment of (1) and (2).

You are making a lot of suppositions when your investment is in an individual stock.

I would be much more inclined to agree with your second series of suppositions if you were describing investing in an asset class, as opposed to investing in an individual stock. There is a lot of data to support the idea that asset classes wax and wane over time, whereas one never knows if an individual stock will recover. 

I fully admit that you may not be able to hold on until a specific asset class returns to favor, but that does not negate the fact that the chance of making some positive return is much more likely if you invest in an asset class than if you invest in an individual stock.

Mike

KCallie:

I can't get over how some people are so resistant to the idea that some people can in fact make informed moves in stocks that end up benefitting them.

Indeed.  My very first stock trade, which was to buy PBSO (then OTC:DHBT) in Oct 2001 for ~$3 and sell it in Feb 2002 for ~$6, pretty conclusively demonstrated to me that all the conventional wisdom about not being able to make money by stock picking or timing was just so much bs.  The odds of doing a trade like that by random chance are astronomically small; moreover I *knew* this was going to happen or at least was quite probable, and I had very specific reasons for why: war was coming, and the military needed to upgrade their personal armor from the old PAGST to the new Interceptor model, of which DHBT was the only maker, even if it was a tiny, virtually unknown OTC company.  They got a few hundred million in new government contracts and I did double my (tiny, back then) savings in about 5 months.

I've had quite a few other astronomically unlikely trades since, probably the most outlandish was buying a bunch of AHM (AHMIQ) puts just exactly the day before they halted trading and announced chapter 11 (again, odds?).

All my trading has been based on the same model, which is that I *predict* stuff.  I'm not always right, nor do I expect to be, but I'm right far more often than random chance would suggest.  Good risk management and appropriate use of leverage make this a consistently profitable strategy.

galderm:

KCallie

"It is starting to look like a good time to start averaging back in slowly."

No, I don't think so.  Looks more to me like the sucker push to the SPX 400dma  just as the 200dma crosses downward.  Very similar to what happened in Oct '73  and Nov '81. 

After that, the hard bottom comes. 

I'm almost 100% cash and plan to stay that way for a while.  Late in the year looks better to me.  Maybe even 'til after the elections.

Just my best guess, but this thing sure looks like it's got a lot of historical  similarities to past crash and recovery cycles.

Gordon

I don't quite get the lingo so please explain.  I understand the relevance of day moving averages and the 200 DMA crossing downward, but what do you mean by a sucker push?  The problem with using the S&P as a benchmark in this current market downturn is the financial stocks are bringing it down and I think for most of them, they have reached their bottom.

By DCA'ing back in, I don't mean back into the market as a whole.  I mean DCA'ing back into stocks/funds selectively.  I think there are some undervalued stocks right now - like some of the financials - and others that are overvalued right now, like some of the potash stocks and other stocks dependent on global growth (which I think is slowing). 

I also think the dollar is going to strengthen after the Fed stops cutting interest rates, which will happen soon.  A stronger dollar means lower oil prices and that will help some of the stocks beaten down by high oil prices.  A stronger dollar also means companies that have benefited from a weak dollar are going to not do as well in their international sales.

The problem that I see with staying in cash is that you are losing money relative to inflation with the interest rates you can earn on your cash.  I am starting to DCA back into the US stocks right now - but slowly and by focusing on certain sectors that have been hit hard recently!

rayden:

All my trading has been based on the same model, which is that I *predict* stuff.  I'm not always right, nor do I expect to be, but I'm right far more often than random chance would suggest.  Good risk management and appropriate use of leverage make this a consistently profitable strategy.

This sums up mine, too.  I definitely don't subscribe to the buy and hold and hope for the best mentality.   That may be the best option for those who don't have the time, smarts or desire to sort through data and analyze it, but if you pay attention to the data, you can make more good calls than you make bad calls.

KCallie

Sorry I missed your response.  I'm spending a lot of time decorating the wife's living room these days.  I simply continue to follow the similarities of todays condtions to the crash cycles I cited in 2424585 back in August.

You could look at spx_historical_price_033108.xls at

http://cid-e664b8cfbe1f7023.skydrive.live.com/browse.aspx/Nonsense%20Spreadsheet 

 It's the basis for how I'm dealing with today's conditions.  

The '68 and '73 secondary crashes show a return to the 400dma just as the 200dma crosses downward.  Basically the same thing as current conditions. 

It appears to me to be an attempt to pull as much money into the markets as possible (sucker push) before the market finally sinks to a hard bottom.  And who really knows what that is going to be???

I clearly don't study these things in the same depth of detail as you do.  I will get back in when I believe there is an oportunity to actually make money.  Right now does not seem like the right time for either stocks or bonds. 

Just my opinion and an investment style that I am comfortable with.

Gordon

Just another bozo on the bus.

galderm:

KCallie

Sorry I missed your response.  I'm spending a lot of time decorating the wife's living room these days.  I simply continue to follow the similarities of todays condtions to the crash cycles I cited in 2424585 back in August.

You could look at spx_historical_price_033108.xls at

http://cid-e664b8cfbe1f7023.skydrive.live.com/browse.aspx/Nonsense%20Spreadsheet 

 It's the basis for how I'm dealing with today's conditions.  

The '68 and '73 secondary crashes show a return to the 400dma just as the 200dma crosses downward.  Basically the same thing as current conditions. 

It appears to me to be an attempt to pull as much money into the markets as possible (sucker push) before the market finally sinks to a hard bottom.  And who really knows what that is going to be???

I clearly don't study these things in the same depth of detail as you do.  I will get back in when I believe there is an oportunity to actually make money.  Right now does not seem like the right time for either stocks or bonds. 

Just my opinion and an investment style that I am comfortable with.

Gordon

Just another bozo on the bus.

Thanks for the info, Gordon.  I am considering getting out of bonds in June and am currently DCA'ing (slowly!) back into certain sectors of stocks (e.g., financials).  I wouldn't touch commodities and commodity-based stocks with a 10-foot pole and am pairing down my US consumer-driven asian and select european stocks right now (keeping the euro pharma and utilities stocks).

Fund managers DO do it all the time and that's why most of them UNDERPERFORM the indexes.

I realize this board is dedicated to the proposition that the markets can be beat.  But I've spent years trying, spent thousands on books and software, and reduced my returns by many thousands and I myself have surrendered to the power of broadly diversified buy and hold portfolio that goes across asset classes.